Overview:

Global stock markets started the week firmly on the back foot and major sovereign bonds have opened significantly higher as markets remain in risk-off mode ahead of President Trump’s retaliatory tariffs announcement on Wednesday. While political and geopolitical noise will dominate, investors will have plenty more economic data to respond to in the week ahead, including updates on inflation, labour markets and economic sentiment:

*  In the US, all eyes will be on the March payroll report (Friday), which Daiwa America economists expect to show a below-consensus rise of 125k, leaving the quarterly average increase in Q1 some 75k lower than in Q4 and perhaps enough to nudge the unemployment rate up 0.1ppt to 4.2%. Risks to the March manufacturing and services ISMs (due Tuesday and Thursday) appear skewed to the downside. And heightened uncertainty over the impact of US trade policies is likely to dominate Fed Chair Powell’s speech on the economic outlook (Friday).     

*  While Italian HICP inflation this morning beat expectations by rising to an 18-month high, the German rate due at lunchtime is likely to have eased in March. So, we expect flash inflation estimates from the euro area (Tuesday) to confirm further modest disinflation, by 0.1ppt, in both the headline and core rates, with the latter easing to its lowest since January 2022. The account of the ECB’s March monetary policy meeting (Thursday) will likely underscore how the evolving global tariff landscape is adding to uncertainty about the inflation outlook, with Governing Council members likely expressing a range of views about the most appropriate way for monetary policy to respond. At the end of the week, German factory orders and French industrial production figures (Friday) might show signs of front-loading amid US tariff threats.       

*  While Japanese industrial production rose for a first month in four in February and above expectations with car production up to a 14-month high, the BoJ’s closely-watched Tankan survey (Tuesday) will likely flag a deterioration in manufacturing sentiment in Q1 amid US tariff uncertainty. While services sentiment will be buoyed by record overseas visitors, the rise in food prices and labour costs might provide some offset and provide a boost to the Tankan’s business price expectation gauges. 

*  In the UK, the results of the BoE’s Decision Maker Panel survey (Thursday) will provide an update on firms’ price and wage growth expectations at the end of Q1. While CPI expectations 12 months ahead might rise further from January’s 10-month high, expectations for 3 years ahead should remain broadly steady and well anchored, providing scope for continued gradual rate cuts. 

Day-by-day key economic data & macroeconomic events

Today:
A busy start to the week brought some positive news with respect to Japanese economic activity. Industrial production rose (2.5%M/M) for the first month in four in February, boosted by a rebound in output of semiconductor equipment and integrated circuits. While car production rose to a 14-month high, the imposition of a 25% tariff hike on auto exports to the US will likely weigh on output over the near terms. Following the weakness at the turn of the year, manufacturing output was still trending a touch below the Q4 average despite the pickup in February. Meanwhile, Japanese retail sales rose for the third month out of the past four (0.5%M/M) to suggest a positive contribution to GDP growth so far in Q1. German retail sales figures also surprised to the upside in February, rising for a second successive month (0.8%M/M) to the highest level since May 2022. This left them trending so far in Q1 some ½% above the Q4 average, further supporting our view that German GDP returned to positive growth this quarter. Attention later today will also be on the flash German inflation estimates in March – regional figures published so far have been mixed, but on balance point to a modest easing in headline inflation, by at least 0.1ppt. Beyond the economic data, today is also expected to bring the court ruling on whether French far-right leader Le Pen committed fraud and embezzled EU funds, which could result in her being barred from running in the next Presidential election.     

Tomorrow:
One focus on Tuesday will be the flash estimates of euro area inflation. We expect the euro area headline and core HICP rates to drop 0.1ppt to 2.2%Y/Y and 2.5%Y/Y respectively, with the latter representing the lowest since January 2022. Declining energy prices will have offered support to disinflation, more than offsetting resistance from higher food prices. But more important for the ECB will be further evidence of moderating services pressures ahead of a more significant base-effect driven decline in April. In Japan, the BoJ’s Tankan survey is likely to report mixed results in Q1 as US tariff speculation likely weighed on manufacturing sentiment, but record tourist arrivals buoyed certain services sectors. The price gauges will also be closely watched ahead of the BoJ’s 1 May policy meeting, with firms possibly boosting output price expectations to reflect the recent rise in food prices and labour costs. Meanwhile, in the US, the manufacturing ISM might well reverse some of the recent improvement amid ongoing uncertainties regarding US trade policies, while the JOLTS report might illustrate a further moderation in job openings.

Wednesday:
All eyes will be on Trump’s ‘reciprocal’ tariff announcements and potential retaliatory measures from major trading partners. Meanwhile, in a quiet day for economic data, US factory orders are expected to post a second successive increase in February, albeit at a more modest pace of 0.7%M/M from 1.7%M/M previously. When excluding the often-volatile transportation component, core factory orders are expected to rise the most in ten months (0.4%M/M). 

Thursday:
In the US, the services ISM is expected to point to ongoing expansion in March (53.0), although risks appear skewed to the downside after the surge in the employment component in February (up 1.6pts to 53.9 having averaged 50.8 in the previous six months). Updated US trade figures are expected to report a similar narrowing in the trade deficit to that reported in the advance goods release (down $7.7bn), although this will only partially reverse the substantial $33.3bn widening in January. Final March services and composite PMIs will also be published from the major economies. The BoE’s Decision Maker Panel survey will also provide an update on UK firms’ price and wage growth expectations at the end of Q1. Meanwhile, the account from the ECB’s March monetary policy meeting will undoubtedly underscore the importance of the heightened uncertainty and the evolving global tariff landscape to the inflation outlook. And as the policy statement had explicitly noted the ECB’s ‘meaningfully less restrictive’ policy stance following the further 25bps cut in the Deposit Rate to 2.50%, the account will also likely convey a wide range of opinions about the future pathway for rates.

Friday:
Attention at the end of the week will be on the US labour market report. Having softened in early 2025, non-farm payrolls are expected to have moderated in March, with Daiwa America’s economists forecasting a drop of 26k from February to 125k, a touch below the Bloomberg survey consensus. This would leave the quarterly average in Q1 some 75k below the Q4 level. It could also nudge up the unemployment rate by 0.1ppt to 4.2%. This notwithstanding, average hourly earnings growth is expected to remain close to the average in the past twelve months (0.3%M/M), while would leave the annual rate steady at 4.0%Y/Y. Meanwhile, US Fed Chair Powell’s speech on the economic outlook will also be watched closely. In the euro area, German factory orders and French industrial production numbers for February might see some payback for the weakness at the start of the year, as well as potential upside from front-loading of demand amid US tariff threats.